Lupin’s stock is up 18 per cent in the past month, taking total gains to 42 per cent from its 52-week low of Rs 409.50 in December 2011. The excellent returns have been on the back of strong performance in all key markets in recent quarters. For the June quarter, the company again reported above-expected results. The stellar growth abroad was partly helped by strengthening of the dollar and yen, but more due to a strong pipeline of products and successful launches.
Notably, growth prospects remain promising, though profit growth could get impacted due to increase in tax expenses. Praful Bohra at Nirmal Bang observes the company has revised its tax expectation to 25-26 per cent from 20-23 per cent earlier.
From a stock perspective, though, a lot of the positives seem priced in. Given the sharp run-up in recent weeks and also the one-year consensus target prices of Rs 590-630, the upside from the current Rs 584 seems limited. However, any inorganic growth opportunities tapped by Lupin or stronger-than-anticipated growth can provide a trigger. Long-term investors could, thus, look at buying the stock on corrections.
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|E: Estimates Source: Nirmal Bang Institutional Equities
Q1: Robust show
Undoubtedly, the June quarter results were robust, with revenues surging 44 per cent year-on-year and 17 per cent sequentially, to Rs 2,254 crore. However, a sharp rise in depreciation costs (Rs 65.4 crore, up 38.7 per cent year-on-year, mainly due to expansions and the Indore Special Economic Zone) and taxes (Rs 120.8 crore, up 322 per cent, as the Goa and Mandideep plants lost their tax-exemption status) restricted profit growth.
The tax rate is now likely to remain at 25-plus per cent. However, the rising costs do not underscore the fact that the company has been showing strong and improving operational performance. The Ebitda (earnings before interest, taxes, depreciation and amortisation) margins at 20.3 per cent showed a 155 basis points improvement over the June 2011 quarter and 93 bps on sequential basis (100 bps equals one percentage point).
Geographic, product performance
The strong revenue growth and operational performance is being led by the US and domestic markets. Japan and other smaller markets scored well, too. The US markets, that contributed 36 per cent to sales, grew robustly by 62.7 per cent. Though the rupee depreciation played a role, nevertheless, in dollar terms, too, US sales growth was good at 41 per cent, much stronger than the 21 per cent reported during the March quarter. While earlier launches like generics of Fortamet (anti-diabetic drug) continued to contribute well, with the base business growing, the momentum to growth was provided by anti-psychotic Geodon (launched in March) and the HIV drug generic combivir (launched in May). Among brands, Suprax continued its growth momentum and Lupin plans handling future competition with dosage form extensions, observe analysts.
Japan, a small, yet important region for driving future growth, saw its contribution to revenue rising to 15 per cent from the earlier 12 per cent, as revenue almost doubled year-on-year to Rs 333 crore in the June quarter, helped by the I’rom Pharma acquisition (in 2011), as well as the yen’s appreciation.
Strong US product pipeline
Lupin might shortly be launching the generics of cholesterol lowering drug Tricor in the coming days, with limited competition. Ramesh Swaminathan, president (finance and planning), said Lupin looked at launching around 20 products in the US markets during 2012-13, including 10 oral contraceptives. Lupin targets $100-125 million revenue from oral contraceptives by 2013-14. The company is working on New Chemical Entities (NCEs), with two in the stage of advanced clinical trials. It is also working on novel drug delivery systems and biosimilars, though the benefits of these might take some time to accrue. Analysts at Emkay Global estimate high-profile product launches like Tricor, Seasonale, Solodyn, Ambien CR, Yaz, Yasmin, Cymbalta, Asacol and Cipro OS would lead to 29 per cent compounded annual growth in the US business over FY12-14.
Domestic biz on strong footing, too
The domestic business (28 per cent of overall sales) grew 25 per cent year-on-year during the June quarter, ahead of the 23 per cent growth seen in the March quarter. While the chronic portfolio (around 50 per cent of the domestic portfolio) grew well, the acute segment is also seeing stronger growth. The acute segment that had seen subdued growth during 2011-12 is now expected to grow at a faster pace, drawing benefits not only for Lupin but for all companies in the sector.
Lupin plans launching 40-50 new products in the domestic market during FY13. In this backdrop, analysts estimate the domestic business to grow at a compounded annual growth rate of a little over 20 per cent during FY12-FY14.